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Three minutes, one tax bill and a $100,000 break for PerdueBy JAMES SALZERThe Atlanta Journal-ConstitutionPublished on: 10/01/06

The Georgia House had been passing legislation for almost 12 hours on thesecond-to-last day of the 2005 session when Rep. Larry O'Neal stepped to thepodium and asked colleagues to pass a seemingly mundane tax bill requestedby the state Department of Revenue.

He smiled and began, "For those of you who are still awake ..."

O'Neal, a Republican from Warner Robins, spent about two minutes that night— March 29, 2005 — discussing House Bill 488, a lengthy, 28-section measure.The bill, among other things, was designed to allow Georgians to delaypaying state taxes on land they sell in Georgia if they buy similar propertyin another state.

He mentioned a last-minute change, which would make the tax breakretroactive to land sales made in 2004.

It was hard to tell how many House members were paying attention. After 39days of debating hundreds of pieces of legislation, the lawmakers werefading despite the bolstering effects of enough coffee and Diet Coke tocaffeinate a small South Georgia town.

But in a back corner, Rep. Don Wix (D-Mableton), who owns a real estatebusiness, took note. Such retroactive tax changes are rare.

O'Neal quickly left the podium — ignoring a question that was asked as hestepped away — and House Speaker Glenn Richardson (R-Hiram) ordered a vote.In 44 seconds, 154 House members passed the bill — including its retroactivetax cut — without dissent.

And just like that, Gov. Sonny Perdue saved an estimated $100,000 in statetaxes.

It is unclear whether anyone in the room knew that Perdue would benefit fromthe tax break. Legislators interviewed for this article said they wereunaware that making the break retroactive helped Perdue or the relativelyfew other taxpayers who could benefit.

In fact, few of the legislators who voted on the measure acknowledge havingmuch — if any — recollection of it.

But it did help Perdue. The governor signed the bill into law on April 12,2005 — three days before taxes were due. Then he took advantage of the taxbreak on his 2004 tax return, according to his staff.

Without the backdated tax break, the governor would have had to pay taxes onmoney he made in 2004 by selling property he owned in Georgia. Later thatyear, he used $2 million in proceeds from the sale of that Georgia land tobuy 19.51 acres near Florida's Walt Disney World.

The governor personally would not answer questions about whether he askedfor the bill to be backdated. But Derrick Dickey, his spokesman, reiteratedFriday that Perdue played no part in the passage of the bill or thebackdating change. The governor's staff won't discuss it further.

Unlike other recent governors, Perdue did not put his assets in a blindtrust when he took office, so he continues to manage his finances andbusinesses while earning a $131,000 annual state salary.

O'Neal appears to have been the provision's main champion in theLegislature. O'Neal, a lawyer who has worked on private land deals forPerdue, did not return several phone calls last week seeking comment.

Perdue's legislative allies who were on a key committee that approved theretroactive change say they don't recall how it all happened. That extendsto the two lawmakers who ran the committee meeting in which the change wasapproved.

However, dozens of interviews with legislators, lobbyists and stateofficials, a review of videos from the floor of the Legislature and a reviewof public records, including Department of Revenue documents and statemeeting minutes obtained by The Atlanta Journal-Constitution, reveal:

•While Department of Revenue Commissioner Bart Graham, a Perdue appointee,said last month that the threat of a lawsuit moved his office to recommendchanging state tax law to defer taxes on certain out-of-state landpurchases, the department's records show no evidence that legal action waspending. When interviewed again recently, Graham said a major taxpayer —whom the commissioner said he cannot legally name — was contesting payingGeorgia taxes on an out-of-state property deal, but that the taxpayer hadnot filed suit or threatened to sue.

•The state's major real estate lobbyist and some of his clients —individuals and businesses most likely to benefit from such a change in taxlaw — say they didn't know about the tax break until they read about it lastmonth in the AJC. Graham's agency said it got the word out via e-mails andinterest group Web sites after the bill passed.

•Graham said he doesn't know who, besides Perdue, benefited from the taxbreak because the state doesn't collect such specific information fromtaxpayers. The state auditor's office estimated in a fiscal note attached tothe bill that the tax break would cost the state $1.2 million per year —suggesting that it is likely to benefit relatively few taxpayers.

•Veteran lawmakers and Graham say it's rare for the state to grant suchretroactive tax breaks. Rep. Richard Royal (R-Camilla), a 20-year member ofthe House Ways & Means Committee and the panel's former chairman, said hedoesn't remember another retroactive tax break. "I was advised bylegislative counsel not to do anything like that."

•Perdue has 40 days after the session to sign bills. He signed HB 488 a dayafter it was sent to his office and three days before the April 15 taxdeadline. Perdue said that he didn't rush to sign HB 488. The governor filedfor an extension on his taxes, his staff said, so the signing date wasirrelevant to him.

An interesting revision

The governor received his tax break on inherited land he and his sister soldto a South Georgia developer in June 2004. They sold 318 acres just north ofPerdue's Houston County home for $4.4 million. In December, he used $2million from his share to buy the land near Disney World in Orlando.

Perdue bought the Florida land from Newnan developer Stanley Thomas, whomthe governor appointed a year earlier to the state's economic developmentboard. The board is stocked with Georgia business leaders and overseesefforts to attract businesses to the state.

Less than two months later, O'Neal filed HB 488, which was designed toeliminate discrepancies between state and federal tax code. Such bills arean annual routine for the Department of Revenue. They often arenoncontroversial and incomprehensible to just about anyone but accountantsand tax lawyers.

O'Neal has had a close relationship with the governor. O'Neal, a lawyer, hasformed partnerships for Perdue and his wife, and once served as thegovernor's House floor leader.

Among HB 488's provisions was one changing the way the state assesses taxeson capital gains from property sales. For years, state law has allowed ataxpayer who sells property in Georgia and then buys a similar piece ofproperty in the state to defer paying capital gains taxes, assessed at 6percent. The taxpayer will have to pay the taxes when he sells the landwithout buying another piece of property.

But, before HB 488 became law in 2005, taxpayers who sold Georgia propertyand bought "like" property in another state still had to pay Georgia capitalgains taxes in that tax year.

Graham said no other state had a capital gains provision like Georgia's, andhe believed it was unconstitutional. Last month, when asked about theprovision, Graham said, "We had some taxpayers who were initiatinglitigation."

However, department records, including correspondence between the agency anda taxpayer who was complaining about the provision, don't contain anythreats of lawsuits.

Even so, Graham said that the taxpayer and his partners were contestingtheir tax bill after an in-state land sale was followed by an out-of-statepurchase of similar property.

The commissioner last week acknowledged that no written complaint had beenfiled, but he considered a formal notice of an impending lawsuit as "thenext logical step."

"We get sued all the time," Graham added.

Although measures like HB 488 are considered "administration bills" and arereviewed by the governor's office, Perdue's staff said he was not involvedin writing or promoting this particular bill.

As originally filed, the bill wouldn't have provided Perdue a tax breakbecause it applied to transactions made after Jan. 1, 2005. Perdue sold hisland in 2004.

The bill passed O'Neal's 24-member committee with little notice. Committeemembers said they recall no debate on it.

It passed the House a week later. It passed the Senate Finance Committee aweek after that, on March 17, 2005.

However, before the bill could make it to the full Senate, it was bouncedback to the Senate Finance Committee. On March 22, O'Neal appeared beforethe committee asking for approval of HB 488 — with a revision, meetingrecords show. He wanted committee members to agree to make the tax breakretroactive to 2004.

Like the members of previous committees, several members of the SenateFinance Committee — Republicans and Democrats — don't remember much. Amongthose who don't recall the events leading up to the bill's retroactivechange are Casey Cagle of Gainesville, who at the time headed the committee.He is now the Republican candidate for lieutenant governor.

Mitch Seabaugh (R-Sharpsburg), a Senate Rules Committee member who made themotion to move HB 488 back to the Finance Committee, said, "I can't remembera thing about it."

The bill made it through the committee and onto the Senate floor with littlediscussion, according to Senate records. It easily passed the full chamber.

Back in the House, O'Neal took the podium, or "well," about 9 p.m., on March29 to present HB 488 for final passage.

He told House members the only change in HB 488 was "the effective date ofthe abolition of the replacement property provision under Section 1031 ofthe IRS code exchange rules."

The bill was approved in minutes.

A lot can get through

Lawmakers call the end of each legislative session the "dangerous hour,"because they often don't have time to read everything before casting votes.Small committees of legislators — called conference committees — bringrewritten legislation before the House and Senate, and lawmakers place theirtrust in colleagues presenting the bills to let them know what's going on.

So legislators like Wix, who figured something was up, still voted for it.So did longtime House Ways & Means Committee member Jeanette Jamieson(D-Toccoa), who runs a tax service.

"It was so obvious the way it was written that it was slid in there in a waywhere it would be considered at the busiest time," she said. "I acceptedwhat was said from the well. I recognized it probably was a tax bill forsomebody."

After reading in the AJC that Perdue benefited from the change, Jamieson,the 22-year legislator said, "I was disappointed in the way it was handled.We had just blindly passed a major tax break for the governor."

When the AJC wrote about Perdue's Florida land purchase, some House memberswho remembered O'Neal's comments about HB 488 on the second-to-last night ofthe session concluded that the governor had benefited, and they contactedthe AJC.

When the AJC wrote about the tax bill three days later, Derrick Dickey,spokesman for Perdue's re-election campaign, said the governor didn't knowabout the special provisions.

Dickey did, however, confirm that Perdue took the tax break.

Then the Perdue campaign stopped answering questions from the AJC, sayingthe governor has no more to say on the matter.

But Perdue did reply when a caller on a radio talk show asked him lastmonth, "The one thing I haven't been able to do is find a way to have afriend of mine write me a bill that saves me a $100,000 on my taxes. I waswondering how I might be able to get that done."

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